FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


             (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 1998
             -------------------------------------------------------


                                       OR

             ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from to
              ----------------------------------------------------


                             Commission file number
                                     0-21558
                          ----------------------------


                            CNL Income Fund XII, Ltd.
       ------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                  Florida                             59-3078856
        (State of other jurisdiction               (I.R.S. Employer
     of incorporation or organization)            Identification No.)


            400 E. South Street
              Orlando, Florida                           32801
  (Address of principal executive offices)            (Zip Code)


        Registrant's telephone number
        (including area code)                        (407) 650-1000


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by  Sections  13 or 15(d)  of the  Securities  Exchange  Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes X No


<PAGE>








                                    CONTENTS




Part I                                                           Page

    Item 1.  Financial Statements:

       Condensed Balance Sheets                                  1

       Condensed Statements of Income                            2

       Condensed Statements of Partners' Capital                 3

       Condensed Statements of Cash Flows                        4

       Notes to Condensed Financial Statements                   5-6

    Item 2.  Management's Discussion and Analysis
                  of Financial Condition and
                  Results of Operations                          7-11


Part II

    Other Information                                            12


<PAGE>


                                                   




                            CNL INCOME FUND XII, LTD.
                         (A Florida Limited Partnership)
                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                             September 30,            December 31,
                                                                                  1998                    1997
                                                                            -----------------       ------------------
<S> <C>
                        ASSETS

Land and buildings on operating leases, less
    accumulated depreciation of $1,711,620
    and $1,460,887                                                               $21,589,219             $20,820,279
Net investment in direct financing leases                                         12,503,960              13,656,265
Investment in joint ventures                                                       2,532,807               2,517,421
Cash and cash equivalents                                                          1,785,128               1,706,415
Receivables, less allowance for doubtful
    accounts of $225,482 and $7,482                                                      346                 202,472
Prepaid expenses                                                                      12,177                   7,216
Lease costs, less accumulated amortization
    of $2,759 and $1,307                                                              26,794                  24,746
Accrued rental income, less allowance for
    doubtful accounts of $5,182 in 1998                                            2,475,477               2,496,176
                                                                            -----------------       -----------------

                                                                                 $40,925,908             $41,430,990
                                                                            =================       =================


                    LIABILITIES AND PARTNERS' CAPITAL

Accounts payable                                                             $         8,312          $       10,558
Accrued and escrowed real estate
    taxes payable                                                                     50,296                   3,244
Distributions payable                                                                956,252                 956,252
Due to related parties                                                                 6,222                   6,887
Rents paid in advance and deposits                                                    34,800                  36,737
                                                                            -----------------       -----------------
       Total liabilities                                                           1,055,882               1,013,678

Partners' capital                                                                 39,870,026              40,417,312
                                                                            -----------------       -----------------

                                                                                 $40,925,908             $41,430,990
                                                                            =================       =================
</TABLE>


                 See accompanying notes to financial statements.

                                       1
<PAGE>


                            CNL INCOME FUND XII, LTD.
                         (A Florida Limited Partnership)
                         CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                            Quarter Ended                    Nine Months Ended
                                                            September 30,                      September 30,
                                                        1998              1997             1998             1997
                                                     -----------       -----------      ------------     ------------
<S> <C>
Revenues:
    Rental income from operating leases              $                 $  621,234        $1,877,428       $1,829,206
                                                        592,290
    Adjustments to accrued rental income                     --                --          (224,867 )             --
    Earned income from direct financing
       leases                                           371,635           409,932         1,170,186        1,231,855
    Contingent rental income                              6,038            11,036            19,755           36,999
    Interest and other income                             7,031            18,420            51,713           59,394
                                                     -----------       -----------      ------------     ------------
                                                        976,994         1,060,622         2,894,215        3,157,454
                                                     -----------       -----------      ------------     ------------
Expenses:
    General operating and
       administrative                                    46,999            38,390           113,005          119,166
    Professional services                                 6,630             6,837            19,616           18,999
    Bad debt expense                                    104,323                --           188,990               --
    Management fees to related parties                   10,320            10,041            31,871           30,005
    Real estate taxes                                    33,877               542            35,029            1,952
    State and other taxes                                    --                --            17,653           18,496
    Depreciation and amortization                        92,113            80,459           252,185          240,010
                                                     -----------       -----------      ------------     ------------
                                                        294,262           136,269           658,349          428,628
                                                     -----------       -----------      ------------     ------------

Income Before Equity in Earnings
    of Joint Ventures                                   682,732           924,353         2,235,866        2,728,826

Equity in Earnings of Joint Ventures                     63,712            71,230            85,604          212,586
                                                     -----------       -----------      ------------     ------------

Net Income                                           $  746,444        $  995,583        $2,321,470       $2,941,412
                                                     ===========       ===========      ============     ============

Allocation of Net Income:
    General partners                                 $    7,465        $    9,956        $   23,215       $   29,414
    Limited partners                                    738,979           985,627         2,298,255        2,911,998
                                                     -----------       -----------      ------------     ------------

                                                     $  746,444        $  995,583        $2,321,470       $2,941,412
                                                     ===========       ===========      ============     ============

Net Income Per Limited Partner Unit                  $     0.16        $     0.22        $     0.51       $      0.65
                                                     ===========       ===========      ============     ============

Weighted Average Number of Limited
    Partner Units Outstanding                         4,500,000         4,500,000         4,500,000        4,500,000
                                                     ===========       ===========      ============     ============

</TABLE>






                 See accompanying notes to financial statements.

                                       2
<PAGE>


                            CNL INCOME FUND XII, LTD.
                         (A Florida Limited Partnership)
                    CONDENSED STATEMENTS OF PARTNERS' CAPITAL


<TABLE>
<CAPTION>

                                                                   Nine Months Ended              Year Ended
                                                                     September 30,               December 31,
                                                                         1998                        1997
                                                              ----------------------------     ------------------
<S> <C>
  General partners:
      Beginning balance                                              $     192,411               $     152,889
      Net income                                                            23,215                      39,522
                                                                   ----------------             ---------------
                                                                           215,626                     192,411
                                                                   ----------------             ---------------
  Limited partners:
      Beginning balance                                                 40,224,901                  40,137,217
      Net income                                                         2,298,255                   3,912,692
      Distributions ($0.64 and
         $0.85 per limited partner
         unit, respectively)                                            (2,868,756 )                (3,825,008 )
                                                                   ----------------             ---------------
                                                                        39,654,400                  40,224,901
                                                                   ----------------             ---------------

  Total partners' capital                                              $39,870,026                 $40,417,312
                                                                   ================             ===============


</TABLE>

                 See accompanying notes to financial statements.

                                       3
<PAGE>


                            CNL INCOME FUND XII, LTD.
                         (A Florida Limited Partnership)
                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                               Nine Months Ended
                                                                                 September 30,
                                                                          1998                    1997
                                                                     ---------------          --------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents:

      Net Cash Provided by Operating Activities                        $  3,066,225            $  2,955,295
                                                                    ----------------         ---------------

      Cash Flows from Investing Activities:
         Additions to land and buildings on
             operating leases                                                    --                 (55,000 )
         Investment in joint ventures                                      (115,256 )                    --
         Collections on loan to tenant of joint
             venture                                                             --                   4,886
         Payment of lease costs                                              (3,500 )               (24,052 )
                                                                    ----------------         ---------------
                Net cash used in investing activities                      (118,756 )               (74,166 )
                                                                    ----------------         ---------------

      Cash Flows from Financing Activities:
         Distributions to limited partners                               (2,868,756 )            (2,868,756 )
                                                                    ----------------         ---------------
                Net cash used in financing
                   activities                                            (2,868,456 )            (2,868,756 )
                                                                    ----------------         ---------------

Net Increase in Cash and Cash Equivalents                                    78,713                  12,373

Cash and Cash Equivalents at Beginning
   of Period                                                              1,706,415               1,800,601
                                                                    ----------------         ---------------

Cash and Cash Equivalents at End of Period                             $  1,785,128            $  1,812,974
                                                                    ================         ===============

Supplemental Schedule of Non-Cash Investing
   and Financing Activities:

      Net investment in direct financing
         leases reclassified to land and
         buildings on operating leases as
         a result of lease termination                                 $  1,019,673            $         --
                                                                    ================         ===============

      Distributions declared and unpaid at end of
         period                                                       $     956,252           $     956,252
                                                                    ================         ===============
</TABLE>


                 See accompanying notes to financial statements.

                                       4
<PAGE>


                            CNL INCOME FUND XII, LTD.
                         (A Florida Limited Partnership)
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
           Quarters and Nine months Ended September 30, 1998 and 1997


1.       Basis of Presentation:

         The accompanying  unaudited  condensed  financial  statements have been
         prepared in accordance  with the  instructions  to Form 10-Q and do not
         include  all  of the  information  and  note  disclosures  required  by
         generally  accepted  accounting  principles.  The financial  statements
         reflect all adjustments,  consisting of normal  recurring  adjustments,
         which are, in the opinion of management,  necessary to a fair statement
         of the results for the interim periods presented. Operating results for
         the nine months ended  September 30, 1998, may not be indicative of the
         results  that may be expected  for the year ending  December  31, 1998.
         Amounts as of December 31, 1997, included in the financial  statements,
         have been derived from audited financial statements as of that date.

         These unaudited financial statements should be read in conjunction with
         the financial statements and notes thereto included in Form 10-K of CNL
         Income Fund XII, Ltd. (the  "Partnership")  for the year ended December
         31, 1997.

         In May  1998,  the  Financial  Accounting  Standards  Board  reached  a
         consensus in EITF 98-9, entitled "Accounting for Contingent Rent in the
         Interim Financial  Periods."  Adoption of this consensus did not have a
         material effect on the Partnership's  financial  position or results of
         operations.

2.        Net Investment in Direct Financing Leases:

         During  the  nine  months  ended  September  30,  1998,  three  of  the
         Partnership's  leases with Long John  Silver's,  Inc.  were rejected in
         connection  with the tenant  filing for  bankruptcy.  As a result,  the
         Partnership  reclassified  these assets from net  investment  in direct
         financing  leases  to  land  and  buildings  on  operating  leases.  In
         accordance  with  Statement  of  Financial  Accounting  Standards  #13,
         "Accounting  for Leases,"  the  Partnership  recorded the  reclassified
         assets at the lower of original  cost,  present fair value,  or present
         carrying amount.  No loss on termination of direct financing leases was
         recorded for financial reporting purposes.

                                       5
<PAGE>


                            CNL INCOME FUND XII, LTD.
                         (A Florida Limited Partnership)
               NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
           Quarters and Nine months Ended September 30, 1998 and 1997


3.        Investment in Joint Ventures:

         In  August  1998,  the   Partnership   entered  into  a  joint  venture
         arrangement,  Columbus  Joint Venture,  with  affiliates of the general
         partners,  to  construct  and  hold  one  restaurant  property.  As  of
         September  30, 1998,  the  Partnership  had  contributed  $115,256,  to
         purchase land and pay construction costs relating to the joint venture.
         The  Partnership  has agreed to  contribute  approximately  $156,763 in
         additional  construction  costs to the joint venture.  The  Partnership
         will have an approximate 28 percent  interest in the profits and losses
         of the joint venture.  The  Partnership  accounts for its investment in
         this joint venture under the equity method since the Partnership shares
         control with affiliates.

         Des Moines Real  Estate  Joint  Venture,  Williston  Real Estate  Joint
         Venture, Kingsville Real Estate Joint Venture, Middleburg Joint Venture
         and  Columbus  Joint  Venture,  each own and lease one  property  to an
         operator  of  national  fast-food  and  family-style  restaurants.  The
         following presents the combined,  condensed  financial  information for
         the joint ventures at:
<TABLE>
<CAPTION>

                                                                          September 30,           December 31,
                                                                              1998                    1997
                                                                        ------------------      -----------------
<S> <C>
                   Land and buildings on operating
                       leases, less accumulated
                       depreciation and allowance for
                       loss on land                                          $2,127,389              $1,768,636
                   Net investment in direct financing
                       leases, less allowance on
                       impairment                                             2,227,673               2,446,688
                   Cash                                                          10,846                   6,893
                   Receivables                                                   21,639                  13,843
                   Accrued rental income                                        156,934                 157,252
                   Other assets                                                     284                     443
                   Liabilities                                                   94,941                   7,673
                   Partners' capital                                          4,449,824               4,386,082
                   Revenues                                                     287,596                 481,085
                   Net income (loss)                                            (57,592 )               446,047
</TABLE>

         The Partnership recognized income totaling $85,604 and $212,586 for the
         nine months ended September 30, 1998 and 1997, respectively, from these
         properties,  $63,712 and  $71,230 of which was earned for the  quarters
         ended September 30, 1998 and 1997, respectively.


                                       6
<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

         CNL Income Fund XII,  Ltd.  (the  "Partnership")  is a Florida  limited
partnership  that was organized on August 20, 1991, to acquire for cash,  either
directly or through  joint  venture  arrangements,  both newly  constructed  and
existing  restaurants,  as well as properties upon which  restaurants were to be
constructed  (the  "Properties"),  which are leased  primarily  to  operators of
national and regional  fast-food and family-style  restaurant chains. The leases
are triple-net  leases,  with the lessees generally  responsible for all repairs
and maintenance,  property taxes,  insurance and utilities.  As of September 30,
1998,  the  Partnership  owned 49 Properties,  which included  interests in five
Properties owned by joint ventures in which the Partnership is a co-venturer.

Liquidity and Capital Resources

         The  Partnership's  primary source of capital for the nine months ended
September  30, 1998 and 1997,  was cash from  operations  (which  includes  cash
received from tenants, distributions from joint ventures, and interest and other
income  received,  less  cash  paid for  expenses).  Cash  from  operations  was
$3,066,225 and $2,955,295 for the nine months ended September 30, 1998 and 1997,
respectively.  The  increase in cash from  operations  for the nine months ended
September 30, 1998, as compared to the nine months ended  September 30, 1997, is
primarily a result of changes in the Partnership's working capital.

         Other  sources and uses of capital  included the  following  during the
nine months ended September 30, 1998.

         In  August  1998,  the   Partnership   entered  into  a  joint  venture
arrangement, Columbus Joint Venture, with affiliates of the general partners, to
construct  and hold one  restaurant  Property.  As of September  30,  1998,  the
Partnership had contributed  $115,256 to purchase land and pay for  construction
costs  relating  to the joint  venture.  When  construction  is  completed,  the
Partnership  will have an  approximate  28 percent  interest  in the profits and
losses of the joint venture.

         Currently,  rental income from the Partnership's Properties is invested
in money market accounts or other short-term,  highly liquid investments pending
the  Partnership's  use of such  funds to pay  Partnership  expenses  or to make
distributions  to the  partners.  At September  30, 1998,  the  Partnership  had
$1,785,128 invested in such short-term investments, as compared to $1,706,415 at
December 31, 1997. The funds  remaining at September 30, 1998,  after payment of
distributions  and  other  liabilities,  will be used to meet the  Partnership's
working capital and other needs.

         Total  liabilities  of  the  Partnership  increased  to  $1,055,882  at
September  30, 1998,  from  $1,013,678  at December  31, 1997,  primarily as the
result of the Partnership  accruing real estate taxes in connection with certain
Long John Silver's  Properties,  as described  below in "Results of Operations."
The general partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.


                                       7
<PAGE>


Liquidity and Capital Resources - Continued

         Based on cash from operations,  the Partnership declared  distributions
to the  limited  partners  of  $2,868,756  for  each of the  nine  months  ended
September 30, 1998 and 1997 ($956,252 for each of the quarters  ended  September
30, 1998 and 1997).  This  represents  distributions  for each  applicable  nine
months  of $0.64  per unit  ($0.21  per unit for each  applicable  quarter).  No
distributions were made to the general partners for the quarters and nine months
ended  September  30,  1998 and 1997.  No  amounts  distributed  to the  limited
partners for the nine months ended  September 30, 1998 and 1997, are required to
be or have been treated by the  Partnership  as a return of capital for purposes
of  calculating  the  limited   partners'   return  on  their  adjusted  capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the limited partners on a quarterly basis.

         The general  partners  have been  informed by CNL  American  Properties
Fund, Inc.  ("APF"),  an affiliate of the general  partners,  that it intends to
significantly  increase its asset base by proposing to acquire affiliates of the
general partners which have similar restaurant  property  portfolios,  including
the Partnership. APF is a real estate investment trust whose primary business is
the ownership of restaurant properties leased on a long-term, "triple-net" basis
to  operators  of national  and regional  restaurant  chains.  Accordingly,  the
general  partners  anticipate  that  APF  will  make an  offer  to  acquire  the
Partnership  in  exchange  for  securities  of APF.  The general  partners  have
recently retained  financial and legal advisors to assist them in evaluating and
negotiating  any offer that may be proposed by APF.  However,  at this time, APF
has made no such offer. In the event that an offer is made, the general partners
will  evaluate it and if the general  partners  believe  that the offer is worth
pursuing,  the general partners will promptly inform the limited  partners.  Any
agreement  to sell the  Partnership  would be  subject  to the  approval  of the
limited partners in accordance with the terms of the partnership agreement.

         The Partnership's  investment strategy of acquiring Properties for cash
and  leasing  them under  triple-net  leases to  operators  who  generally  meet
specified financial  standards  minimizes the Partnership's  operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.

         The general  partners have the right,  but not the obligation,  to make
additional capital  contributions if they deem it appropriate in connection with
the operations of the Partnership.

Results of Operations

         During  the  nine  months  ended  September  30,  1998  and  1997,  the
Partnership  owned  and  leased 44  wholly  owned  Properties  to  operators  of
fast-food and family-style  restaurant chains. In connection  therewith,  during
the nine months  ended  September  30,  1998 and 1997,  the  Partnership  earned
$2,822,747 and $3,061,061,  respectively, in rental income from operating leases
(net of  adjustments  to accrued  rental  income) and earned  income from direct
financing  leases from these  Properties,  $963,925 and  $1,031,166 of which was
earned during the quarters ended September 30, 1998 and 1997, respectively.  The
decrease in rental and earned  income  during the quarter and nine months  ended
September 30, 1998,  as compared to the quarter and nine months ended  September
30, 1997, is primarily attributable to the fact that in June 1998, the

                                       8

<PAGE>


Results of Operations - Continued

Partnership  discontinued  receiving  rental  income from the tenant,  Long John
Silver's,  Inc.,  which filed for bankruptcy and rejected the leases relating to
these Properties.  In addition, during the nine months ended September 30, 1998,
the  Partnership  wrote off  approximately  $224,900  of accrued  rental  income
(non-cash  accounting  adjustments  relating  to the  straight-lining  of future
scheduled  rent  increases  over the lease  term in  accordance  with  generally
accepted  accounting  principles).  The general  partners are currently  seeking
either new  tenants or buyers for these  Properties.  The  Partnership  will not
recognize any rental and earned income from these  Properties  until new tenants
for these  Properties  are  located,  or until the  Properties  are sold and the
proceeds from such sales are reinvested in additional Properties.

         The  decrease in rental and earned  income  during the quarter and nine
months ended  September 30, 1998 was  partially  offset by an increase in rental
and  earned  income of  approximately  $87,700  as a result  of the  Partnership
entering into a new lease with a new tenant for the Property in Tempe,  Arizona,
for which rental payments commenced in July 1997.

         For the nine months ended  September 30, 1998 and 1997, the Partnership
also earned  $19,755 and $36,999,  respectively,  in contingent  rental  income,
$6,038 and $11,036 of which was earned during the quarters  ended  September 30,
1998 and 1997, respectively. The decrease in contingent rental income during the
quarter and nine months ended September 30, 1998, as compared to the quarter and
nine months ended September 30, 1997, is primarily attributable to a decrease in
gross sales of certain restaurant properties whose leases require the payment of
contingent rental income.

         For the nine months ended September 30, 1997, the Partnership owned and
leased four  Properties,  and for the nine months ended  September 30, 1998, the
Partnership  owned and leased five Properties  indirectly  through joint venture
arrangements.  In connection  therewith,  during the nine months ended September
30, 1998 and 1997, the  Partnership  earned $85,604 and $212,586,  respectively,
attributable to net income earned by these joint  ventures,  $63,712 and $71,230
of which was earned  during the  quarters  ended  September  30,  1998 and 1997,
respectively.  The  decrease  in net  income is  primarily  due to the fact that
Kingsville  Real Estate Joint  Venture (in which the  Partnership  owns a 31.13%
interest  in the  profits  and  losses  of the  joint  venture)  established  an
allowance for doubtful accounts of approximately  $21,900 and $87,800 during the
quarter and nine months ended  September 30, 1998,  respectively,  in accordance
with its collection policy. No such allowance was established during the quarter
and nine months ended  September 30, 1997.  In addition,  during the nine months
ended September 30, 1998, the joint venture established an allowance for loss on
land and net  investment  in the  direct  financing  lease for its  Property  in
Kingsville,  Texas of  approximately  $316,000.  The  allowance  represents  the
difference  between the Property's  carrying value at September 30, 1998 and the
estimated net  realizable  value of the Property.  Kingsville  Real Estate Joint
Venture is currently seeking either a new tenant or purchaser for this Property.


                                       9
<PAGE>


Results of Operations - Continued

         Operating expenses,  including  depreciation and amortization  expense,
were  $658,349 and $428,628  for the nine months  ended  September  30, 1998 and
1997,  respectively,  of which  $294,262  and  $136,269  were  incurred  for the
quarters  ended  September  30,  1998 and 1997,  respectively.  The  increase in
operating  expenses  during the quarter and nine months ended September 30, 1998
is primarily  attributable  to the fact that the  Partnership  recorded bad debt
expense for past due  principal and interest  amounts  relating to the loan with
the tenant of the  Property  in  Kingsville  Real  Estate  Joint  Venture due to
financial  difficulties the tenant is experiencing.  The general partners are in
the process of  negotiating  an arrangement to collect past due amounts and will
recognize any such amounts as income if collected.

         In addition,  the increase in operating expenses during the quarter and
nine months ended September 30, 1998, is partially attributable to the fact that
the  Partnership  accrued  insurance and real estate tax expenses as a result of
Long John Silver's, Inc. filing for bankruptcy and rejecting the leases relating
to three Properties in June 1998. The increase in operating  expenses during the
quarter and nine months ended  September 30, 1998, is partially  attributable to
an increase in depreciation  expense due to the fact that during the quarter and
nine months ended September 30, 1998, the Partnership  reclassified these assets
from  net  investment  in  direct  financing  leases  to land and  buildings  on
operating leases. The Partnership will continue to incur certain expenses,  such
as real estate taxes,  insurance,  and maintenance  relating to these Properties
until new tenants or buyers are located.  The  Partnership is currently  seeking
either new tenants or buyers for these Properties.

         In May  1998,  the  Financial  Accounting  Standards  Board  reached  a
consensus in EITF 98-9, entitled  "Accounting for Contingent Rent in the Interim
Financial Periods." Adoption of this consensus did not have a material effect on
the Partnership's financial position or results of operations.

         The Year 2000 problem is the result of information  technology  systems
and embedded  systems  (products which are made with  microprocessor  (computer)
chips such as HVAC systems,  physical  security  systems and elevators)  using a
two-digit  format,  as  opposed  to four  digits,  to  indicate  the year.  Such
information  technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.

         The  Partnership  does  not have any  information  technology  systems.
Affiliates  of the general  partners  provide all services  requiring the use of
information  technology  systems  pursuant to a  management  agreement  with the
Partnership.  The maintenance of embedded systems,  if any, at the Partnership's
properties is the  responsibility of the tenants of the properties in accordance
with the terms of the Partnership's  leases. The general partners and affiliates
have  established  a  team  dedicated  to  reviewing  the  internal  information
technology systems used in the operation of the Partnership, and the information
technology  and  embedded  systems  and the Year  2000  compliance  plans of the
Partnership's  tenants,   significant  suppliers,   financial  institutions  and
transfer agent.


                                       10
<PAGE>


Results of Operations - Continued

         The  information  technology  infrastructure  of the  affiliates of the
general  partners  consists of a network of personal  computers and servers that
were  obtained   from  major   suppliers.   The   affiliates   utilize   various
administrative  and financial  software  applications on that  infrastructure to
perform the business functions of the Partnership.  The inability of the general
partners  and  affiliates  to identify  and timely  correct  material  Year 2000
deficiencies  in  the  software  and/or   infrastructure   could  result  in  an
interruption in, or failure of, certain of the Partnership's business activities
or operations.  Accordingly,  the general partners and affiliates have requested
and are evaluating  documentation from the suppliers of the affiliates regarding
the Year  2000  compliance  of  their  products  that  are used in the  business
activities or operations of the  Partnership.  The costs expected to be incurred
by the general  partners and  affiliates to become Year 2000  compliant  will be
incurred by the general  partners and  affiliates;  therefore,  these costs will
have no impact on the Partnership's financial position or results of operations.

         The  Partnership  has  material  third  party  relationships  with  its
tenants,  financial  institutions and transfer agent. The Partnership depends on
its  tenants  for  rents  and  cash  flows,   its  financial   institutions  for
availability  of cash and its  transfer  agent to  maintain  and track  investor
information.  If any of these third parties are unable to meet their obligations
to the  Partnership  because of the Year 2000  deficiencies,  such a failure may
have a material impact on the  Partnership.  Accordingly,  the general  partners
have requested and are evaluating  documentation from the Partnership's tenants,
financial  institutions,   and  transfer  agent  relating  to  their  Year  2000
compliance  plans.  At this time,  the general  partners  have not yet  received
sufficient   certifications   to  be  assured   that  the   tenants,   financial
institutions,  and  transfer  agent  have fully  considered  and  mitigated  any
potential material impact of the Year 2000 deficiencies.  Therefore, the general
partners do not, at this time, know of the potential costs to the Partnership of
any  adverse  impact  or effect of any Year  2000  deficiencies  by these  third
parties.

         The general  partners  currently  expect that all year 2000  compliance
testing  and any  necessary  remedial  measures  on the  information  technology
systems used in the business  activities and operations of the Partnership  will
be completed prior to June 30, 1999.  Based on the progress the general partners
and affiliates  have made in identifying and addressing the  Partnership's  Year
2000 issues and the plan and timeline to complete the  compliance  program,  the
general  partners  do  not  foresee   significant   risks  associated  with  the
Partnership's  Year 2000 compliance at this time.  Because the general  partners
and affiliates  are still  evaluating the status of the systems used in business
activities  and  operations  of the  Partnership  and the  systems  of the third
parties with which the Partnership  conducts its business,  the general partners
have not yet  developed  a  comprehensive  contingency  plan and are  unable  to
identify "the most  reasonably  likely worst case scenario" at this time. As the
general partners identify  significant  risks related to the Partnership's  Year
2000 compliance or if the Partnership's Year 2000 compliance  program's progress
deviates  substantially from the anticipated timeline, the general partners will
develop appropriate contingency plans.


                                       11
<PAGE>


                           PART II. OTHER INFORMATION


Item 1.          Legal Proceedings.  Inapplicable.

Item 2.          Changes in Securities.  Inapplicable.

Item 3.          Defaults upon Senior Securities.  Inapplicable.

Item 4.          Submission of Matters to a Vote of Security Holders.

                      Inapplicable.

Item 5.          Other Information.  Inapplicable.

Item 6.          Exhibits and Reports on Form 8-K.

                 (a)  Exhibits - None.

                 (b)  No reports on Form 8-K were filed during the quarter ended
                      September 30, 1998.

                                       12
<PAGE>







                                   SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                  DATED this 10th day of November, 1998.


                           CNL INCOME FUND XII, LTD.

                           By: CNL REALTY CORPORATION
                                 General Partner


                                   By:  /s/ James M. Seneff, Jr.
                                        -----------------------------
                                        JAMES M. SENEFF, JR.
                                        Chief Executive Officer
                                        (Principal Executive Officer)


                                   By:  /s/ Robert A. Bourne
                                        -----------------------------
                                        ROBERT A. BOURNE
                                        President and Treasurer
                                        (Principal Financial and
                                        Accounting Officer)